ColTel hybrid offers tough test for investor appetite
By Davide Scigliuzzo
NEW YORK, March 17 (IFR) - Colombia Telecomunicaciones (ColTel) is marketing a rare hybrid security that will provide a stiff test for investor appetite given the current state of play in the LatAm capital markets.
While ColTel is using the deal to bolster its balance sheet under new accounting standards, the trade is far from standard fare - and unlikely to be an especially easy sell to accounts.
Latin America has seen its fair share of hybrids from banks but only rarely from corporates, especially those like BB/BB rated ColTel that are sub-investment grade.
Perhaps in view of the difficulties, leads are marketing the deal far and wide, and will find out how much demand exists at the moment for such a deeply subordinated structure.
"Some of the banks have done it before but I don't think this is something that, especially in this market, investors would want to buy," one sell-side corporate analyst told IFR.
The Colombian government, which owns 30% of ColTel alongside a 70% stake held by Spain's Telefonica, made it mandatory for companies to switch international accounting standards to IFRS from GAAP, effective in 2015.
Under IFRS, ColTel must add some COP4.0trn (US$1.5bn) in legacy labor and pension costs from state-owned predecessor Telecom, which was liquidated in 2003, to its balance sheet.
But the switch will result in a drop in net shareholder equity to minus COP974bn, or US$407m, according to a copy of the bond's preliminary offering memorandum seen by IFR. Continuación...